Tuesday, October 30, 2012

The run up to Ukraine’s October 28
parliamentary elections received relatively little coverage and interest in the
US, Canadian and European media except over the question of their conduct and
expected election fraud.

Leaders of international
organizations raised many doubts before the election about whether they could
be declared democratic when opposition leaders Yulia Tymoshenko and Yuriy
Lutsenko remain imprisoned on trumped up charges. The July 2012 Organization
for Security and Cooperation in Europe (OSCE) Parliamentary Assembly’s Monaco
Declaration called on: “Reaffirming
the importance for Ukraine of respecting the OSCE commitments, including the
principles of transparency, equal opportunities, freedom of expression and
fulfillment of the requirements of fair and free elections” (http://www.oscepa.org/news-a-media/press-releases/1028-parliamentary-assembly-adopts-monaco-declaration).

During the election campaign, Ukrainian non-governmental organizations
(NGO) Opora (Resistance), Chesno (Honesty), Spilna Sprava (Mutual Affair) and
Committee of Voters routinely provided reports of election fraud (www.oporaua.org, www.chesno.org, www.spilnasprava.com,
www.cvu.org). In addition, the European Network of Election Monitoring
Organizations (ENEMO), the National Democratic Institute and International
Republican Institute found that the elections were the worst since 2004 and
therefore a regression (http://www.enemo.eu/ukraine2012.htm). Whereas, opposition
and NGO web sites suffered from DOS attacks on election day that crippled them.

The new mixed proportional–first past the post election law attracted support
from the pro-presidential Stability and Reforms coalition and half of
opposition deputies, which proved to be a major mistake for the opposition
parties. United Opposition leader Arseniy Yatseniuk showed his weak political
acumen when he claimed the adoption of the new election law “is the victory of the opposition.
The opposition’s demands were clearly formulated and we managed to have these
demands met. The majority wanted to adopt the law, which would steal the votes
of electors, as it was during the local elections. We did not allow this law to
be passed and [thus prevented] election fraud. According to this law, the
opposition will win the parliamentary elections in 2012” (November 18, 2011, Interfax-Ukraine).

If the 2004 full proportional election law had remained
in place, the combined opposition, with over 50 percent of the vote, would have
been in a position to establish a parliamentary majority—as they did in 2006
and 2007. However, in 2010 a constitutional coup d’état reverted Ukraine to its
1996 presidential system where the government is under the president’s control.
Ukraine’s parliament today is a rubber stamp institution.

It was not a surprise that the Party of Regions
received first place plurality of 28–32 percent of the vote—as they received in
2006 and 2007 (see EDM,
October 17), according to exit polls. Defying opinion polls, the United
Opposition came in second with 23–25 percent; Tymoshenko’s popularity has
always been under-estimated by pre-election polls, and the 2012 election was no
different. The Ukrainian Democratic Alliance for Reforms(UDAR), led by boxing
champion Vitaliy Klychko, received 13–15 percent and third place, filling the
niche previously held by Viktor Yushchenko’s Our Ukraine. UDAR (meaning strike)
remains an untested political force (see EDM,
October 29).

These election results resembled 2006, when the Party
of Regions, Bloc of Yulia Tymoshenko (BYuT) and Our Ukraine received a similar
31-, 24- and 14-percent vote breakdown, respectively.

With 12 percent of the vote, the Communist Party (KPU)
was able to more than double its poor performance on 2006 (four percent) and
2007 (five percent) by attracting voters to return from the Party of Regions,
although this was still far lower than the 20 percent of the vote the KPU won
in 2002. The KPU’s electorate this year was disenchanted by unpopular IMF
reforms, such as raising household utility prices, adopted by the Nikolai
Azarov government.

The populist-nationalist Svoboda party was the
surprise on election day, with 11–13 percent of support, entering parliament
for the first time. Svoboda leader Oleh Tyahnybok declared that one of his
party’s first legislative acts will be to ban the Communist Party. Initiatives
such as these will inevitably lead to repeats of boxing matches that parliament
has already witnessed (http://www.kyivpost.com/content/politics/opposition-blocks-ukrainian-parliament-1-128270.html).

The authorities are projected to capture two thirds
or more of deputies elected in first-past-the-post districts, giving them a
parliamentary majority; but a constitutional majority will be beyond their
means. This would rule out the much talked about scenario for 2015 where the
authorities change the constitution to a parliamentary system with parliament
electing Yanukovych president, thereby avoiding a popular presidential election
he could potentially lose.

How will the OSCE define the elections that just took
place, and how will the West react? Clearly, with opposition leaders unable to
participate and extensive examples of fraud, the OSCE will not declare the
elections to be democratic. At the same time, they are unlikely to be denounced
in the same manner as elections in Russia—even though much of the same type of electoral
fraud took place in Russia’s December 2011 elections (http://www.osce.org/odihr/elections/82441).

Continued international isolation for Yanukovych predates
the election, and never publicized visa black lists against the ruling regime could
possibly be adopted by Western countries. Sanctions are unlikely unless
Republican Party candidate Mitt Romney, no friend of President Barack Obama’s
Russia reset, wins the US presidential elections and adopts a hard line toward
Russia and Ukraine.

Monday, October 29, 2012

Russia’s natural gas monopoly Gazprom has repeatedly pledged
to start natural gas exports to China. However, these plans have remained on
paper, despite numerous promises to the contrary.

On October 25, Russia’s Deputy Energy Minister Anatoly
Yanovsky announced that yet another round of bilateral talks on gas prices was
expected before the end of this month. However, he refrained from disclosing
more details or commenting on whether the much-awaited bilateral deal could
become a reality. The matter was last discussed during President Vladimir Putin’s
visit to China on June 5–6, 2012. The RBC news agency commented that the two
sides’ disagreement over gas prices differed by some $100 per one thousand
cubic meters (RBC,
October 25).

Gazprom’s project to build the Altai gas pipeline from
Siberia to China has been stalled for years as both sides struggled to agree on
gas prices. More than six years ago, Moscow first pledged to export Russian gas
to China via a 6,700-kilometer Altai pipeline. In March 2006, Gazprom and CNPC
signed a memorandum on the delivery of Russian natural gas to China.

Gazprom offered to supply gas at European prices, while CNPC
insisted on lower rates. Initially, Russian officials expected a final
agreement on the cost of gas to be concluded in 2009, and gas supplies to start
in 2014–2015. In September 2010, Russia and China signed a binding agreement on
gas supplies that envisaged Russian exports of up to 38 billion cubic meters
(bcm) per year from Eastern Siberia and 30 bcm per year from Western Siberia.

Indeed, in October 2011, then Prime Minister Vladimir Putin
said that bilateral talks on the terms of Russian gas supplies to China “were
nearing completion.” Then Deputy Prime Minister Igor Sechin also stated that
both sides achieved progress in negotiations on gas prices. When asked whether
the gas contract could be signed by the end of 2011, Sechin said there was no
rush, adding that both sides agreed to finalize a “roadmap” in two weeks (Interfax,
ITAR-TASS, October 10, 2011). While, in September 2012, Gazprom noted some
progress in pricing negotiations with Chinese partners, but did not elaborate (Prime-Tass,
October 25).

However, the latest developments indicate that both sides have
yet to conclude any binding agreement on gas prices, and the bilateral
negotiations have remained inconclusive. Therefore, the Russian plans to export
gas to China apparently remain stalled, as do Moscow’s intentions to diversify
the country’s natural gas exports.

Friday, October 26, 2012

The Polish press has taken to calling it “the unsinkable” [link in Polish] ship. After months of uncertainty, the
advanced “Gawron” naval vessel, which was being constructed at the Gdynia Naval
Shipyard, may yet sail under the Polish standard after all—albeit under a
different name and in a different form.

The Gawron-class multi-role corvette, based on the German MEKO
A-100 design, would have been the Polish Navy’s most modern vessel. Under
construction for more than a decade, the Gawron suffered a series of deadline
setbacks and continuous cost overruns until Prime Minister Donald Tusk’s
government officially canceled the project in February 2012. After more than 450 million
PLN ($141 million) being spent on building the corvette, the shipyard had reportedly
only constructed the hull and engine, leading Minister of Defense Tomasz
Siemoniak to derisively [link in Polish] dub it “the most expensive motorboat in
the world.” Following the Gawron project’s cancellation, debate in Poland
ensued as to whether to scrap the hull entirely or try to sell it abroad.
However, a foreign buyer never materialized (Gazeta
Wyborcza, September 26).

Yet, prospects for the vessel grew much more positive by the
fall. An updated inventory of the construction revealed that the Gawron hull
had many more internal components and systems installed than was initially
assumed. Even more importantly, Polish naval officials succeeded in persuading
the government that the Navy needed new, up-to-date surface ships. In
September, Defense Minister Siemoniak told journalists that the government has
decided not to scrap the Gawron hull, but would instead invest an extra 250
million PLN ($78 million) to incorporate the hull into a new patrol boat [link in Polish] for the Navy, based on its need for coastal
patrol vessels.

Days later, on September 26, while viewing the “Anakonda 12”
Polish military exercise, Prime Minister Tusk made an official announcement regarding
the government’s planned military procurements [link in Polish]. In particular, he reaffirmed the defense
minister’s earlier pronouncement, promising that the government would
incorporate the Gawron hull into a new, modern patrol boat for the Navy. He
also declared that the government would in fact allocate resources for
repairing one of Poland’s two aging Perry-class frigates. In February 2012,
Tusk had cancelled the planned repairs to both frigates along with terminating
further construction of the Gawron-class corvette (see Jamestown Foundation Blog, March 1).

In addition to the announcement about naval vessels, Tusk
also notably declared that the government would purchase not just 26 new military
helicopters, but would in fact order 70 of them in the coming years. And the
contract with a supplier would be contingent on the helicopters being produced
in Poland—a pre-condition meant to boost the Polish economy (Wprost, September 26). This will likely be good news for US
company Sikorsky Corporation—maker of the Black Hawk S-70i helicopter—and the
British-Italian Agusta Westland company, both of which already have working
production facilities in Poland and are in competition over the military helicopter contract with Eurocopter SAS.

The new patrol boat utilizing the Gawron hull will likely be
christened the ORP Ślązak. Its
specially designed stealth hull will, from a certain distance, give it a radar
cross section equal to a civilian pleasure yacht. In addition, because it will
be much lighter as a patrol boat than as a corvette—which it was initially
designed to be—the Ślązak will be the
fastest vessel of its size in the Baltic basin, likely able to reach speeds of
over 30 knots, and be able to turn almost in place. The new patrol boat will
not be designed with anti-submarine capabilities—thus it will no longer be able
to fulfill the Gawron corvette’s universal range of missions. However, the ORP Ślązak will have the capability to act
autonomously away from port or supply lines for 30 days at a time. This is
important, military analysts note, because it will allow for the naval vessel
to be used in expeditionary missions, for instance in the Mediterranean Sea (Gazeta
Wyborcza, October 16).

Polish naval participation in long-term expeditionary
missions has been relatively modest to date, but notable in mine countermeasures
(MCW) operations. In recent years, the flagship vessel Warsaw sent on allied
operations has been the ORP Czernicki MCM
command and support ship, commissioned in 2001. The Czernicki took part in Operations Enduring Freedom and Iraqi
Freedom, and for several years has been in the Mediterranean as part of the NATO
anti-terrorism mission [link in Polish] “Active Endeavor.” Although in the area at
the outbreak of hostilities in Libya in 2011, the Czernicki was not involved [link opens PDF file in Polish] in NATO’s Libyan operation
because Warsaw abstained from participating. Many of Poland’s ships capable of
participating in international operations will be phased out in the coming
years, however. It will, therefore, be useful for Poland to have another
modern, large surface vessel it can use for both coastal protection and as a
“pocket corvette” that can be sent as a contribution to Alliance missions away
from home (Gazeta
Wyborcza, October 16).

The government’s decision on the Gawron represents a partial
backtracking on Poland’s significant naval strategy rethink [link in Polish] that the ministry of defense revealed at
the end of March 2012. According to Polish strategists, Poland has limited
naval interests, and a conflict in the Baltic basin would be mainly fought in
the air, underwater and by laying mines—hence the government’s decision to
phase out most of its larger surface vessels in favor of smaller patrol boats,
submarines, helicopters and unmanned aerial vehicles (UAVs), as well as coastal
protection missile batteries. As a large patrol boat with expeditionary
capabilities, the Gawron-turned- Ślązak
fits this strategy, but also leaves the door open to more ambitious naval
operations far from home in league with Poland’s Allies. The government’s
renewed plans to repair one of the two Polish frigates further underscores a
cautious decision to slow down the elimination of Poland’s large surface ships.

Clearly, however, economic concerns are also driving the
Tusk government’s decision. Having avoided a recession when most of the rest of
Europe felt the worst of the global financial crisis in 2009, Poland’s GDP growth is projected to slow
down significantly in the year ahead, in
large part due to the slowdown in Western Europe. Predictions of economic
growth of 2.2 percent in 2013, while still enviable in the West, will have a
sobering effect on the country’s unemployment levels. Hence the Polish
government’s focus on increasing domestic large-scale production, whether by
ordering more than twice as many military helicopters as originally planned—and
requiring them to be constructed in Poland—or now by restarting the Gdynia
naval shipyard’s building of the Gawron rather than letting its hull be
relegated to scrap. The notorious, “unsinkable” Gawron has thus been saved by
both policymakers’ strategic broad thinking, as well as a protracted economic
crisis.

Wednesday, October 17, 2012

Belarus’s leader has accused Russian tycoons of
plotting to bribe him, and the accusations came as the latest twist in
bilateral efforts to forge new potash business ventures.

On October 16,
Belarusian President Alyaksandr Lukashenka made a highly unusual claim that he
was offered $5 billion in kickbacks by unspecified “Moscow oligarchs.” The
anonymous Russian tycoons allegedly offered huge kickbacks (or “otkat” in
Russian) in exchange for Minsk selling the country’s only potash producer and
exporter, the state-owned Belaruskali, for $10 billion.

The Belarus
strongman claimed that the “otkat” was offered by a Russian insider, described
as “Misha.” Lukashenka further argued that Belaruskali’s actual price was
estimated at $30-32 billion (http://m.interfax.by/news/belarus/118589).

The
allegations, quite unusual even by Lukashenka’s colorful standards, followed
prolonged attempts by Belarus and Russia to form new, joint potash businesses.

Back in 2005, Moscow and Minsk
moved to create the Belarus-registered Belarus Potash Company (BPC). It is now
co-owned by Russia’s potash producer Uralkali (50 percent), Belaruskali (45
percent) and Belarus Railways (5 percent).

In 2011, the
BPC exported 12.9 million tons of potash, including 7.7 million tons from
Belaruskali and 5.2 million tons from Uralkali. The BPC is estimated to account
for nearly 40 percent of the global potash market.

In May 2012,
Belarus and Russia decided to create a new joint venture, Soyuzkaliy, on a
parity basis that would replace the BPC. The new entity would be registered in
Switzerland, and it is expected to start operations in February 2013. However,
Soyuzkaliy may not be able to start operations before Belarus and Russia agree on potash sales
volumes and pricing policies.

Companies from
Russia, China and India reportedly indicated interest in Belaruskali
privatization. In July 2012, Lukashenka announced that Belaruskali’s
controlling stake was not for sale, at least below $30 billion (http://www.regnum.ru/news/economy/1576051.html).

Lukashenka’s latest
remarks, made during a meeting with Russian journalists, came as an affront to Moscow’s
perceived insistence that Russian businesses should be given greater access to
the process of privatization in Belarus. On July 18, Prime Minister Dmitry
Medvedev urged the Belarusian government to expedite Belaruskali’s
privatization (http://en.rian.ru/world/20120718/174670853.html).
By floating these bribery allegations, Lukashenka apparently indicated his
continued reluctance to allow Russian businesses to control key industrial
assets in Belarus.

Friday, October 12, 2012

During a meeting in Moscow on October 9, President Vladimir
Putin and his Kazakh counterpart Nursultan Nazarbayev hailed their countries’ bilateral
investment cooperation. Nazarbayev, who traveled to Moscow to mark the 20th
anniversary of the bilateral friendship treaty, said that Russian businesses
invested in a total of 1,700 companies in Kazakhstan (The Russian presidential press-service statement, October 9).

But as Russian and Kazakhstani leaders reiterated pledges of
bilateral investment partnership, actual developments in Kazakhstan appeared to
indicate otherwise. Incidentally or not, also on October 9, Alexander Sutyaginsky, the
CEO of
Silicium Kazakhstan LLP, was detained in Almaty under some controversial
circumstances.

Silicium Kazakhstan is controlled
by Russia’s Titan group, based in Omsk
region. Olga Nikiforova, Titan board member, said Sutyaginsky was arrested
immediately after leaving Almaty economic court. According to Nikiforova, some
unknown fraudsters forged court documents and filed a lawsuit in Sutyaginsky’s name, apparently aiming to take over Silicium Kazakhstan,
Kazakhstan’s first silicon metal plant that
cost $160 million to be built. After Sutyaginsky testified in court that these documents were indeed forged, he was detained by unknown
armed people who fired warning shots, Nikiforova said (http://www.kt.kz/index.php?lang=rus&uin=1133168944&chapter=1153562036).

On October 10, Kazakhstan's
Interior Ministry issued a statement and disclosed that Sutyaginsky was
arrested on charges of plotting a contract hit to eliminate an unnamed business
partner. The statement also claimed that a Kalashnikov assault rifle and
ammunition were seized at Sutyaginsky's residence (http://www.inform.kz/rus/article/2501503).

Launched in November 2010, Silicium
Kazakhstan has been operating at about 20 percent of its designed 25,000-tons-per-year capacity. Nonetheless, Titan
group used to describe Silicium Kazakhstan as a successful, “highly competitive” project implemented in cooperation
with Germany’s ThyssenKrupp. Titan group also
planned to build the Polysilicon plant in Omsk with a production capacity of 10,000 tons per year, relying on silicon metal supplies from Kazakhstan (http://www.titan-omsk.ru/eng/Press-centr/Novosti.html?nid=471).

The incident came as an
embarrassment to Omsk regional authorities. The local government was forced to
put off its presentation of the Polysilicon plant, originally scheduled for October 10 (http://www.bk55.ru/inform/article/12518/).

While a merit of criminal charges against
Sutyaginsky remains a matter of further debate, his detention obviously came at
a very convenient time for unknown fraudsters who aimed to jettison Russian
investors from the
Silicium Kazakhstan venture.

Wednesday, October 10, 2012

The
reconstructed airport of so-called Nagorno-Karabakh’s capital, Stepanakert
(Khankendi, in Azeri version), was officially launched on Monday, September 1,
the Haykakan Zhamanak paper reports, citing Dmitry Abashyan, the head of the
“country’s” General Department of Civil Aviation (GDCA)(http://www.tert.am/en/news/2012/10/02/chvert/?sw).
The airport was built in the Soviet period and served mostly flights between the
Nagorno-Karabakh Autonomous Region of Azerbaijan and Yerevan, the capital of
Armenia, but was demolished during the Karabakh war in the early 1990s.

According
to Abashyan, the airport was given a certificate late in September, which
confirms that the airport complies with international standards and has a right
to serve arrivals and departures. The exact starting day of the first flights
has not been decided upon yet, the newspaper notes, referring to Adbashyan’s
earlier statement on a scheduled pilot flight for Saturday.

Responding
to an inquiry about the possibility that Azerbaijan might respond to this
action by downing aircraft flying to Stepanakert and the avenues to prevent
this, the head of the General Department of Civil Aviation (GDCA) in Karabakh
stated that this refers to civil airplanes. “Civil airplanes do not plan to hide;
they will have all the recognition devices,” he said
(http://www.news.am/eng/news/123240.html), implying that Azerbaijan would know
that the aircraft was a civilian plane and not an aircraft used by the Armenian
military.

Armenia
has postponed the opening of the airport for over a year. It was set to open
the airport in the occupied internationally recognized Azerbaijani territory a
year ago, back in May 2011 (http://www.newsland.ru/news/detail/id/668226/). At
that time Armenian President Serzh Sargsyan proclaimed that he would be the
first passenger to fly from Stepanakert to Yerevan. His announcement sparked a
protest from Baku, who warned that Azerbaijan might attack aircraft over its
occupied lands, and subsequently the airport never opened. It appeared that officials in Armenia were
just using the issue to annoy Baku, as it does with the intention, time after
time, to recognize the independence of the self-proclaimed “Nagorno-Karabakh
Republic.”

However,
it seems now, that the recent “Safarov case” has altered the situation and put Armenian
President Serzh Sargsyan on the defensive as a result of the Safarov case. According to the Armenian expert Richard
Giragosian, the decision to reopen the airport in Karabakh appears to be a
direct response to the case of Azeri officer Ramil Safarov, who murdered an
Armenian military officer in a NATO exchange course in Budapest in 2004.
Safarov was extradited back to Azerbaijan and immediately pardoned upon his
return (http://www.news.am/eng/news/123312.html). Carnegie Endowment senior
specialist Thomas de Waal, however, does not see the likelihood that Azerbaijan
will attack airplanes at the airport should it start operating because of the
fear that any military attack on the airport could cause a backlash in the
international community. However, De Waal believes that the opening of the
airport will only deepen the tensions between Armenia and Azerbaijan and
heighten the state of military friction that exists between the two sides in
Karabakh (http://news.am/rus/news/123188.html).

About The Jamestown Foundation

The Jamestown Foundation’s mission is to inform and educate policy makers and the broader community about events and trends in those societies which are strategically or tactically important to the United States and which frequently restrict access to such information. Utilizing indigenous and primary sources, Jamestown’s material is delivered without political bias, filter or agenda. It is often the only source of information which should be, but is not always, available through official or intelligence channels, especially in regard to Eurasia and terrorism.